The market smaller-than-Hercules market didn't entirely disappear. The C-23 Sherpa and C-27 Spartan were examples. The former, developed from the Shorts 360, was, if I recall correctly, purchased to serve USAF logistics requirements within Europe. I believe that it was retired before serving very long.
The Lockheed Martin C-27, developed from the Aeritalia G-222, was purchased by the Army to support Middle East operations not adequately served by the USAF. Predictably, the USAF objected and absorbed the entire fleet. Before long they were declared surplus, transferred to the Afghan Air Force and parked. After a few years of ownership by the Afghans and very little use, the DoD hired a contractor to scrap them on site.
Apparently the series of decisions that led to the acquisition, abandonment and scrapping of a fleet of new aircraft was sufficiently dispersed within the USAF that no one was prosecuted.